Donnerstag, 30. Oktober 2008
Squeezing the accelerator
Due to economic recession, hedge funds believed that the car company VW would also have problems selling its cars. That's why they thought VW shares were highly overvalued and would soon be falling. So, hedge funds lended 12 % of the VW shares from investors and did something called a short selling. However, hedge funds hadn't taken into account that the biggest VW investor, Porsche, had a cash-settled call option to increase its present shares at VW from 35 % to 74 %. So when Porsche announced that it wants to increase its shares at VW, this caused an explosion of the share value of VW. Thus in order to minimize losses, hedge funds had to quickly buy VW shares at a much higher value at which they had lended them. This again caused the value of VW shares to rocket. Early estimates suggested that the hedge funds' losses could be as much as $ 30 billion.
Mittwoch, 1. Oktober 2008
One world
One world
Due to globalization,national companies have become more integrated in the gloabl economy. The positive side of globalization is that it has the potential to increase productivity and living standards everywhere. However, critics of globalization predict that increasing competition from low-wage developing countries will destroy jobs and push down wages in rich economies. Even 50 years before World War 1, there was a period of globalization which was driven by reductions in trade barriers and a sharp fall in transport costs. This previous trend of globalization ended with Worl War 1, which was the cause for trade protectionism and tight restricitons on capital movement. After World War 2, big economic powers realized that it was important to reduce trade barriers in order to recover. They set up an arrangement on tariffs and trade, called the Bretton Woods system. In the 1970s the Bretton Woods system collapsed which led to the rebirth of the global free market in which goods and money were floating. The two factors, an improvement in technology and liberalization, were responsible for the increased flows of money and goods. Methods used to measure the degree of product- market integration have shown that many countries openness to trade hasn't changed a lot since 1913 and that prices converge across countries which is due to the persistence of import barriers. Product markets are not even close to being integrated across borders as within a nation and even the financial markets are not fully integrated yet. While product and capital markets have become increasingly integrated, labour markets have not, since labour is less mobile than it was in the second half of the 19th century. These facts don't conclude that globalization is not happening. As opposed to the pre 1914 globalization period where large parts of the world didn't participate in the world economy, more economies than ever are taking part in the globalization process today. In the future, new technology will encourage further integration and make it even harder for protectionist governments to block trade. In addition, organizations like the World Trade Organization give stability to free trade. All that awards globalization a good foundation to be more durable than it was before World War 1.
Due to globalization,national companies have become more integrated in the gloabl economy. The positive side of globalization is that it has the potential to increase productivity and living standards everywhere. However, critics of globalization predict that increasing competition from low-wage developing countries will destroy jobs and push down wages in rich economies. Even 50 years before World War 1, there was a period of globalization which was driven by reductions in trade barriers and a sharp fall in transport costs. This previous trend of globalization ended with Worl War 1, which was the cause for trade protectionism and tight restricitons on capital movement. After World War 2, big economic powers realized that it was important to reduce trade barriers in order to recover. They set up an arrangement on tariffs and trade, called the Bretton Woods system. In the 1970s the Bretton Woods system collapsed which led to the rebirth of the global free market in which goods and money were floating. The two factors, an improvement in technology and liberalization, were responsible for the increased flows of money and goods. Methods used to measure the degree of product- market integration have shown that many countries openness to trade hasn't changed a lot since 1913 and that prices converge across countries which is due to the persistence of import barriers. Product markets are not even close to being integrated across borders as within a nation and even the financial markets are not fully integrated yet. While product and capital markets have become increasingly integrated, labour markets have not, since labour is less mobile than it was in the second half of the 19th century. These facts don't conclude that globalization is not happening. As opposed to the pre 1914 globalization period where large parts of the world didn't participate in the world economy, more economies than ever are taking part in the globalization process today. In the future, new technology will encourage further integration and make it even harder for protectionist governments to block trade. In addition, organizations like the World Trade Organization give stability to free trade. All that awards globalization a good foundation to be more durable than it was before World War 1.
globalization
Globalization
This text focuses on the definition of important economic terms. Globalization is a movement that leads to more indipendence and its main effect is the dramatic increase of the amount of international trade and thus companies are able to sell their products in every market of the world. There are different types of corporations: multinational corporations with manufaturing, sales or service subsidies in more than one country, conglomerates whose asset growth is mainly due to the aquisition of other firms with unrelated products, and lastely merger which result from a fusion of two or more corporations. Competition is another important economic aspect. Its characterized by sellers of a product competing with other sellers and buyers of a product competing with other buyers in order to supply or aquire an economic service or good. One theme in the history of competition has been the monopoly, which means that there is only one seller of a certain product, who is able to control the prices in this particular industry. When talking about monopolies, the term "cartel" also has to be mentioned. Cartels are national or international organizations of manufacturers or traders that by agreement control the prices of goods in a particular market.
This text focuses on the definition of important economic terms. Globalization is a movement that leads to more indipendence and its main effect is the dramatic increase of the amount of international trade and thus companies are able to sell their products in every market of the world. There are different types of corporations: multinational corporations with manufaturing, sales or service subsidies in more than one country, conglomerates whose asset growth is mainly due to the aquisition of other firms with unrelated products, and lastely merger which result from a fusion of two or more corporations. Competition is another important economic aspect. Its characterized by sellers of a product competing with other sellers and buyers of a product competing with other buyers in order to supply or aquire an economic service or good. One theme in the history of competition has been the monopoly, which means that there is only one seller of a certain product, who is able to control the prices in this particular industry. When talking about monopolies, the term "cartel" also has to be mentioned. Cartels are national or international organizations of manufacturers or traders that by agreement control the prices of goods in a particular market.
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